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Though the prospect of higher-than-expected rates hike and rising bond yields have diminished the appeal of dividend stocks, applying some smart beta strategies to the dividend investing world could fetch higher returns.
This is because the strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like volatility, revenues, earnings, momentum and other fundamental factors to the market cap or rules-based indices. And nothing seems better than picking the dividend growth strategy.
Why Dividend Growth Strategy?
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
Moreover, a history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included.
5-Year Historical Dividend Growth greater than zero: This selects stocks with a solid dividend growth history.
5-Year Historical Sales Growth greater than zero: This represents stocks with a strong record of growing revenue.
5-Year Historical EPS Growth greater than zero: This represents stocks with a solid earnings growth history.
Next 3–5 Year EPS Growth Rate greater than zero: This represents the rate at which a company’s earnings are expected to grow. Improving earnings should help companies sustain dividend payments.
Price/Cash Flow less than M-Industry: A ratio less than M-industry indicates that the stock is undervalued in that industry and that an investor needs to pay less for better cash flow generated by the company.
52-Week Price Change greater than S&P 500 (Market Weight): This ensures that the stock appreciated more than the S&P 500 over the past one year.
Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.
Growth Score of B or better: Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are six of the 20 stocks that fit the bill:
Illinois-based Jones Lang LaSalle Inc. (JLL - Free Report) is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. The company has seen solid earnings estimate revision of 72 cents over the past 30 days for this year and has an expected earnings growth rate of 7.53%. The stock has a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Maryland-based Lockheed Martin Corporation (LMT - Free Report) is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. It has seen whopping earnings estimate revision of $1.59 over the past 30 days for this year and has an expected earnings growth rate of 16.05%. The stock has a Zacks Rank #2 and a Growth Score of A.
Ohio-based Owens Corning Inc. (OC - Free Report) is a world leader in building materials systems and composite solutions. The company saw solid earnings estimate revision of 27 cents over the past 30 days for this year and has an expected earnings growth rate of 28.64%. Owens Corning has a Zacks Rank #2 and a Growth Score of A.
Texas-based Westlake Chemical Corporation (WLK - Free Report) is a vertically integrated international manufacturer and supplier of petrochemicals, polymers and fabricated products. It has seen solid earnings estimate revision of 83 cents for this year over the past one month. The Zacks Rank #1 stock has a Growth Style Score of B and an expected earnings growth rate of 47.71%.
Oregon-based Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia. It has seen positive earnings estimate revision of 17 cents for this year over the past month, and delivered an average positive earnings surprise of 16.53% in the past four quarters. The stock has a Zacks Rank #2 and a Growth Score of A.
California-based Intel (INTC - Free Report) is one of the world's largest semiconductor chip maker. It has seen positive earnings estimate revision by four cents for this year over the past month, and delivered an average positive earnings surprise of 14.81% in the past four quarters. It has a Zacks Rank #2 and a Growth Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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6 Smart Beta Dividend Stocks to Buy Now
Though the prospect of higher-than-expected rates hike and rising bond yields have diminished the appeal of dividend stocks, applying some smart beta strategies to the dividend investing world could fetch higher returns.
This is because the strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like volatility, revenues, earnings, momentum and other fundamental factors to the market cap or rules-based indices. And nothing seems better than picking the dividend growth strategy.
Why Dividend Growth Strategy?
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and thus act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, these offer downside protection with their consistent increase in payouts.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
Moreover, a history of dividend growth year over year leads to a healthy portfolio with a greater scope of capital appreciation as opposed to simple dividend paying stocks or those with high yields. Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
As a result, picking dividend growth stocks appear as winning strategies when some other parameters are also included.
5-Year Historical Dividend Growth greater than zero: This selects stocks with a solid dividend growth history.
5-Year Historical Sales Growth greater than zero: This represents stocks with a strong record of growing revenue.
5-Year Historical EPS Growth greater than zero: This represents stocks with a solid earnings growth history.
Next 3–5 Year EPS Growth Rate greater than zero: This represents the rate at which a company’s earnings are expected to grow. Improving earnings should help companies sustain dividend payments.
Price/Cash Flow less than M-Industry: A ratio less than M-industry indicates that the stock is undervalued in that industry and that an investor needs to pay less for better cash flow generated by the company.
52-Week Price Change greater than S&P 500 (Market Weight): This ensures that the stock appreciated more than the S&P 500 over the past one year.
Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.
Growth Score of B or better: Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are six of the 20 stocks that fit the bill:
Illinois-based Jones Lang LaSalle Inc. (JLL - Free Report) is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. The company has seen solid earnings estimate revision of 72 cents over the past 30 days for this year and has an expected earnings growth rate of 7.53%. The stock has a Zacks Rank #1 and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Maryland-based Lockheed Martin Corporation (LMT - Free Report) is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. It has seen whopping earnings estimate revision of $1.59 over the past 30 days for this year and has an expected earnings growth rate of 16.05%. The stock has a Zacks Rank #2 and a Growth Score of A.
Ohio-based Owens Corning Inc. (OC - Free Report) is a world leader in building materials systems and composite solutions. The company saw solid earnings estimate revision of 27 cents over the past 30 days for this year and has an expected earnings growth rate of 28.64%. Owens Corning has a Zacks Rank #2 and a Growth Score of A.
Texas-based Westlake Chemical Corporation (WLK - Free Report) is a vertically integrated international manufacturer and supplier of petrochemicals, polymers and fabricated products. It has seen solid earnings estimate revision of 83 cents for this year over the past one month. The Zacks Rank #1 stock has a Growth Style Score of B and an expected earnings growth rate of 47.71%.
Oregon-based Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia. It has seen positive earnings estimate revision of 17 cents for this year over the past month, and delivered an average positive earnings surprise of 16.53% in the past four quarters. The stock has a Zacks Rank #2 and a Growth Score of A.
California-based Intel (INTC - Free Report) is one of the world's largest semiconductor chip maker. It has seen positive earnings estimate revision by four cents for this year over the past month, and delivered an average positive earnings surprise of 14.81% in the past four quarters. It has a Zacks Rank #2 and a Growth Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
Zacks Restaurant Recommendations: Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »